Inside story

Along with soaring prices, Israel rings in 2025 with economic reforms, but will they work?

With a few behemoths dominating imports of food, cosmetics and other products, changes are intended to lower costs including by boosting competition; experts have their doubts

Sue Surkes is The Times of Israel's environment reporter

Shoppers and supermarket staff seen at the new branch of a Mahsanei HaShuk chain in Katzrin, on the Golan Heights, on November 22, 2022. (Michael Giladi/Flash90)
Shoppers and supermarket staff seen at the new branch of a Mahsanei HaShuk chain in Katzrin, on the Golan Heights, on November 22, 2022. (Michael Giladi/Flash90)

Israelis woke up on January 1, 2025, to massive rises in taxes, prices and utility bills.

But the new year also ushered in a slew of reforms aimed at lowering prices in the short, medium and longer terms.

The reforms, led by the Economy Ministry in cooperation with the Health and Energy Ministries, are based on a decision by the Ministerial Committee to Combat the Cost of Living in September 2023.

The government believes the changes will cut bureaucracy, costs and time, expand the variety of products, increase competition, and eventually help bring the cost of living down.

But with food, cosmetics and certain other markets dominated by a handful of conglomerates and companies, experts wonder whether the reforms will bear fruit.

In line with Europe

One key plank of the reforms is aligning Israeli and European standards. The former were introduced decades ago to protect Israeli products and, as intended, have presented importers with multiple obstacles, such as having to have items tested in Israel to ensure they meet Israeli rules, which raises costs.

Illustrative: Ovens and other home related appliance or equipment in a retail store showroom. (Starush/iStock)

From now on, importers (and some domestic manufacturers) of thousands of goods will need to retain a statement that the goods comply with European regulations. When imports reach Israel, the items will be released without bureaucratic delay or any need for regulatory approvals.

The Economy Ministry estimates that reform will save importers between 8% and 16% of the value of the import, and hopes consumers will enjoy an even higher percentage of savings as competition rises.

The reform covers household, kitchen, and leisure and sports products, plus products for babies and children, such as toys, cribs, strollers, and kitchen chairs. Diapers and tampons are also included.

Illustrative picture of a man shopping for diapers in a store. (Vladdeep, iStock by Getty Images)

Under an Energy Ministry reform, from November 1, importers will be able to import any electrical product marketed in Europe that is registered in the publicly available European Register of Energy Labels for Energy-Requiring Appliances (EPREL).

According to the Economy Ministry, 60% of the official standards have been aligned, with the remaining 40% due to come into force by the end of 2027.

Much work remains to be done.

Rachel Gur, former vice president of the crowdfunded citizens’ lobby organization Lobby99, explained that there are 530 official standards for nonfood items and 130 for food items.

Rachel Gur, former vice president of Lobby99. (Courtesy)

However, there are thousands of other standards that did not fall under standards legislation but were buried in other laws over the past 75 years.

“They may be scattered in half sentences,” said Gur, who now teaches at Reichman University in central Israel. “Some are not in law, but ordinances or internal rules or instructions put out by ministries, such as health. They need to be brought together into one comprehensive document, together with the Israel Standards Institute, so that work on adapting or repealing them can be carried out.”

The food sector

The food sector reform includes expanding the adoption of European regulation in areas such as food safety and labeling.

Israelis stock up on food at a Rami Levy supermarket in Jerusalem, March 12, 2020. (Olivier Fitoussi/FLASH90)

A company that meets various conditions, including having a quality and safety control plan based on risk management, will be defined as a “proper importer.” The company will be able to import any food manufactured or marketed in the EU, except for certain items such as nutritional supplements, baby and toddler food, meat, fish and eggs and their products, dairy products from unpasteurized milk, and fresh fruit and vegetables.

The reduction in bureaucracy will, according to the Economy Ministry bring savings to the importer of 7% to 11%.

Cosmetics

Proper importers will be allowed to import cosmetics legally marketed in the European Union, Switzerland or the United Kingdom, with the exception of sunscreens, hair straighteners and items for babies or children up to age 12. Taking full responsibility for the safety and efficacy of the cosmetics they import, importers will need documents from the manufacturers or suppliers confirming that the product is legally marketed in the permitted countries and detailing aspects such as safety and storage conditions.

Super-Pharm is one of the main retail chains for cosmetics, July 13, 2014.(Moshe Shai/FLASH90)

Up until now, importers had to submit thick files of documents to Health Ministry officials to get approval in advance. Savings are estimated at 7% to 9%.

Will the standardization reform bring prices down? “Nobody knows,” said Gur. She added, “For some items, such as electronic goods, air conditioning units, some household goods like backpacks, the adoption of [European] standards [in an earlier wave of items cleared for EU alignment] has already created a wave of importing and price drops.”

Parallel imports

Another, related, reform that entered into force on January 1 aims to encourage competition by removing barriers to parallel imports and small and medium import businesses.

Big companies, such as Colgate-Palmolive, prefer to contract with a single importer and distributor in each country. To date, the importer/distributor with the franchise has been able to charge high prices for lack of competition.

Parallel importers, who buy stock cheaply overseas and offer to sell it in Israel for less than the exclusive importers, have been severely limited.

Colgate products on sale in Jerusalem, February 5, 2020. (Sue Surkes/Times of Israel)

“According to the Economy Ministry, only 2.5% of toiletries have been coming in through parallel import up to now,” said Gur. “The potential is huge.”

Now, the floodgates for parallel imports will open so that an importer who buys Colgate toothpaste in Romania, where the price is lower, for example, will be able to sell it in Israel for less than the Israeli franchisee, and the franchisee will be banned from doing anything to stop this.

Monopoly rules

It remains to be seen whether the savings from the import reforms will be passed on to customers and whether the changes will bring more competition so long as essential everyday items such as food and drinks, toiletries, cleaning supplies, and other low-cost household items are controlled by a small number of companies.

As The Times of Israel reported nearly two years ago — and little on this particular topic has changed, according to Gur — a handful of companies control a vast swath of brands in stores, giving them great power. Well-known food and beverage companies include Tnuva, Osem, Strauss (who mainly manufacture food but also import), Unilever Israel (which mainly imports) and the Central Bottling Company/Coca Cola Israel, which both produces beverages and imports leading international brands.

A general view of the Coca Cola factory in the central Israeli city of Bnei Brak, August 17, 2023. (Chaim Goldberg/Flash90)

Among the lesser known are Schestowitz and Diplomat. Schestowitz holds the (exclusive) franchise for over 110 brands, from Colgate, Johnson’s, Revlon, Oatley and Barilla pasta, to Issey Miyake, Gucci, Burberry and Mercedes Benz. Diplomat holds the rights to 135 brands in food, personal hygiene, and cleaning materials.

Will new importers be able to compete with those holding franchises to dozens of international brands and can they offer a one-stop shop to supermarkets and other retail chains?

An Israeli submission for an OECD forum on competition earlier this month said, with an understatement, that the large conglomerates dominating Israel’s food market “might increase the bargaining power of the suppliers vis-a-vis the retailers and harm the ability of small suppliers to enter into new markets or to expand their sales.”

“Nobody will enter a card game if they feel the deck is stacked against them,” Gur said. “With anything from coffee to toothpaste to tampons to diapers, you’ll see two, maximum three companies control 80-90% of the market share [with each holding a franchise to a different brand within the same product category].”

Who׳s in charge?

The Israel Competition Authority is the state body responsible for promoting competition and greenlighting mergers.

According to its annual report for 2023 (Hebrew link), the state body continued to “enforce every violation of the Competition Law that we detected and stopped mergers in advance that could contribute to the cost of living.”

Adv. Michal Cohen, Director-General of the Israeli Competition Authority, attends a Knesset Economic Committee meeting at the Knesset, in Jerusalem, on January 17, 2024. (Yonatan Sindel/Flash90)

It reviewed and made decisions on 139 mergers and continued a criminal investigation in the food industry with the legal department reviewing investigation materials, drafting indictments in some cases, and summoning suspects to hearings. It imposed what it called “agreed upon” fines totaling tens of millions of shekels, including a record fine of NIS 111 million ($30.4 million) on the Strauss food conglomerate in connection with an alleged attempt to merge with tofu producer Weiler Farm before the merger had been approved. (Strauss will appeal.) In June, the authority declared Wissotzky Tea a monopoly over sales of green and herbal tea dominating 70% of the market.

In a report published (Hebrew link) in November on concentration in the food and basic products markets, State Comptroller Matanyahu Englman said the market share of the five largest suppliers in the food and consumer market had fallen slightly to 37.5% of the food market share in 2022, compared to 42.7% in 2017.

State Comptroller Matanyahu Englman at the Israel Bar Association’s conference on justice in Tel Aviv, September 3, 2024. (Tomer Neuberg/Flash90)

Nevertheless, he found that during 2023, other than Wissotsky tea, the authority had systematically failed to examine additional categories in the food and consumer products sector that were highly concentrated, including categories dominated by direct importers — such as Diplomat and Schestowitz.

The Competition Authority believes that there are numerous other legal tools to control these market behemoths without rushing to break them up and that there are other causes of price rises, among them ever-increasing demands from the Rabbinate to tighten up kosher guidelines.

The authority is carrying out a major research project to try to pinpoint where in the chain the price rise problems are. Part of the research will involve reviewing the pros and cons of breaking up monopolies and large suppliers, but it will take years before any conclusion is reached.

‘In Israel, there’s magic: Prices only go up’

With store prices rising, retailers are fond of citing supply chain issues and raw material price rises as factors — explanations that Gur rejects.

“It’s true that international food prices and shipping costs rise, but they also fall, ” she said. “In Israel, we have a unique kind of magic, by which prices only go up.”

Illustrative: Shipping containers at the Haifa port, November 14, 2011. (Yaakov Naumi/Flash90.)

“Shipping costs went back to pre-pandemic levels until the Houthis in Yemen started attacking ships [in the Red Sea], but did you see food prices fall? No,” said Gur.

She said Lobby99 examined what would be the additional costs of taking ships around the Horn of Africa, to avoid the Houthis.

“We found significant differences in cost for high-value, large items like cars, or thin items with low value like paper goods where margins are not that big,” she said. “But with items such as toiletries or tinned tuna, where the value is high and a lot goes into the container, the addition to the overall price may be 1% to 3%. We’ve seen price rises on these kinds of goods of 15% to 20%, ostensibly because of the shipping route change.

“It doesn’t make sense.”

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